African Bank Suspends Debt Payments as Accounts Investigated

Road works sit by traffic lights outside an African Bank branch, a unit of African Bank Investments Ltd. (Abil), in Johannesburg. Abil collapsed last week after saying it needed to raise at least 8.5 billion rand to survive, causing the stock to drop 95 percent in three days and bond prices to fall by more than half. Photographer: Dean Hutton/Bloomberg

Aug. 13 (Bloomberg) -- Debt holders in African Bank
Investments Ltd., the failed South African lender, may not be
paid when 1 billion rand ($94 million) of bonds mature next
month, while shareholders may not have lost everything.

“The September bonds are suspended for now -- we need to
get a better handle on things first,” Tom Winterboer from
PricewaterhouseCoopers LLP, who was appointed caretaker of the
bank, said by telephone from Johannesburg today. “Interest is
being suspended. The 10 percent haircut for senior bondholders
is on the interest and the capital.”

Winterboer, who was called to the South African Reserve
Bank on Aug. 8 and asked to take over the running of Abil, as
the bank is known, has pored over the failed lender’s books for
almost three days. Abil collapsed last week after saying it
needed to raise at least 8.5 billion rand to survive, causing
the stock to drop 95 percent in three days and bond prices to
fall by more than half.

The central bank is splitting Abil into a good bank and a
bad bank, which will hold the soured loans. Winterboer has been
assigned the task of reviving the remaining good bank with the
help of seven institutions that are underwriting a 10 billion-rand fundraising. The stock was suspended on Aug. 11 and the
bank, in curatorship, has frozen payments on its debt.

“We’re concerned as to how long this frozen state will
persist,” Conrad Wood, head of fixed income at Momentum Asset
Management, which holds Abil debt, said by telephone. He said
the good bank should be able to repay its short-term debt given
the planned fundraising.

‘Sympathetic’ Curator

“We’re working with the numbers and it’s hard to have
answers,” Winterboer said. “We need to establish values and
what goes into the good bank. People have lost a lot of money
and one is sympathetic.”

SARB will buy 7 billion rand of the bad bank’s 17 billion
rand of loans and seek to recoup that money by collecting the
debt. The more the central bank can recover, the more may be
available for bondholders.

“There’s a belief that the 7 billion rand is
recoverable,” Winterboer said. He will give a further update to
the market as soon as possible, he said, without giving details.
For shareholders “all is not necessarily lost,” he added.

Reckless Lending

African Bank’s decline started in March last year when the
National Credit Regulator said it wanted to fine the company for
reckless lending, scuppering Abil’s plan to raise money in
foreign debt markets.

The bank’s profit dwindled in the first half and it cut its
dividend. As it posted a full-year loss, Abil sought to raise
5.5 billion rand in a rights offering to bolster capital.

Until there’s full legal certainty on the restructuring and
the impact of Abil’s collapse on both senior and subordinated
bondholders, it’s impossible to know what the final losses will
be for all bondholders, Johannesburg’s stock exchange said in a
note on its website yesterday.

If Abil had gone into liquidation, senior bondholders would
be facing bigger losses than just a 10 percent haircut,
Winterboer said. “Now they have certainty, and SARB and the
banks thought that was a fair number.”